The commercial health insurance markets in the United States in 2014 experienced a significant change relative to prior years. These changes were most dramatic in the individual health insurance market, with the conversion from medical underwriting to adjusted community rating in many states, as well as the implementation of the federal and state insurance marketplaces, facilitating premium assistance to many Americans who were previously uninsured. The 2014 edition of Milliman’s annual report on the commercial health insurance market provides an overview of financial results in the individual and group insurance markets. The report also focuses on enrollment changes in the individual market and the impact of the Patient Protection and Affordable Care Act of 2010’s (ACA) risk adjustment and risk corridor programs.
With the enactment of the Patient Protection and Affordable Care Act (ACA), health insurers have had to comply with several requirements. The insurer experience in 2013 reflects the third year insurers have been required to comply with federal minimum loss ratio requirements. This Healthcare Reform Briefing Paper by Milliman’s Paul Houchens, Jason Clarkson, and Colin Gray provides an overview of health insurer financial results in 2013.
Here is an excerpt from the report:
How have financial results changed since 2010?
With four years of insurer financials available, assessments of the ACA’s impact on insurer expense structure and profitability prior to the 2014 rating reforms can be made. Figure 2 provides the incremental change in costs from 2010 to 2013 for insurers reporting financial results during all years between 2010 and 2013. For example, in the individual market, earned premium PMPM has increased approximately $27 from 2010 to 2013.
Figure 2 indicates that premium increases in the group insurance markets tracked very closely with claims expense increases. However, in the individual health insurance market, growth in claims expenses outpaced premium growth by nearly $10 PMPM. This is the primary reason why the medical loss ratio percentage increased by 5.5% in the individual insurance market from 2010 to 2013, despite an increase in administrative expenses on a PMPM basis.
Figure 3 provides a visual representation of changes in each market’s financial structure from 2010 through 2013. Total administrative and claims expense are represented by the red shaded bars, while carrier earned premium is represented by the green outline surrounding the bars. As illustrated by this figure, the gap between earned premium and the sum of administrative and claims expenses has remained consistent in the group markets from 2010 through 2013, yet has been eliminated over the four-year period in the individual market.